Oct 7, 2018

Budget stereotypes are dying hard in Europe

Felix Salmon

Giuseppe Conte and Theresa May — Italy's Prime Minister Giuseppe Conte (L) and British Prime Minister Theresa May at the G7 Summit. Photo: Leon Neal via Getty Images

Italy's deficit was always greater than that of the U.K. — until 2007, when it shrank to just 1.5% of GDP. Since then, the roles have been reversed: Italy, constrained by its membership in the eurozone, has had relatively modest deficits, while the U.K., with a free-floating currency, has been able to spend more to recover from the crisis.

The big picture: Stereotypes die hard. The U.K. is proclaiming an end to austerity, while Italy has just emerged from yet another budget crisis.

In the end, the bond vigilantes won, and the populist government was forced to announce that it will reduce its deficit over the next three years.
Next year's deficit of 2.4% of GDP is now an absolute cap, and 2% or lower is the medium-term target.
Meanwhile, expect Britain's deficit to explode after Brexit, as the government tries to counteract the effects of being cut off from its own continent.

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Budget stereotypes are dying hard in Europe

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